NZ dollar dips vs USD, gains vs yen as central banks dominate

The New Zealand dollar struggled to gain traction against the US dollar after the US Federal Reserve kept intact plans for another rate hike this year while pushing higher against the yen after the Bank of Japan kept monetary policy steady.

The kiwi slipped to 72.08 US cents as at 5pm from 72.22 cents yesterday, following the Fed decision. It was at 80.14 yen from 79.16 yen yesterday after the statement from the BOJ, which also upgraded its assessment of private consumption and overseas growth, signalling its confidence that an export-driven economic recovery was broadening and gaining momentum.

The US dollar remained firm in the Asian trading session after the Federal Open Market Committee was relatively hawkish yesterday, releasing its plan for balance sheet reduction earlier than expected and keeping the interest rate outlook unchanged and "US inflation indicators and the Fed are expected to be the key drivers of the NZD outlook for the rest of the year," said Bank of New Zealand currency strategist Jason Wong.

"By contrast, NZ monetary policy will take the back seat, with the RBNZ's clear policy guidance that rates won't be changing for a long time," said Wong. All 16 economists surveyed by Bloomberg expect no change in the official cash rate at next Thursday's review.

The gross domestic product data "supports our view that the RBNZ is likely to sit on its hands and keep the official cash rate unchanged at 1.75 percent for an extended period. We maintain our view that the RBNZ will not hike interest rates until late 2018," said Kiwibank chief economist Zoe Wallis.

A trader at ASB Bank said investors had moved in to sell the kiwi against the Australian dollar today after iron ore prices held up "reasonably strongly" on the day. It pared some of its losses, however, and was at 95 Australian cents from 94.88 cents yesterday.

BNZ's Wong expects the kiwi to hover around the 95 Australian cents level for the rest of the year, "so for exporters a buy on dips strategy remains appropriate." He said the medium-term bias was one of upward pressure, based on the view "New Zealand faces increased capacity pressures in the economy relative to Australia, ultimately leading to the RBNZ tightening policy ahead of the RBA."

The kiwi fell to 56.44 British pence from 56.64 pence late yesterday. The trade-weighted index rose to 77.64 from 77.48 yesterday. The kiwi was trading at 4.9108 yuan from 4.9063 yuan, and rose to 64.67 euro cents from 64.36 cents.

New Zealand's two-year swap rate fell 1 basis point to 2.15 percent while the 10-year swap rate rose 4 basis points to 3.14 percent.

(BusinessDesk)